Dow Jones: Hotter PPI Sparks Caution in US Indices as Fed Rate Forecast Wavers

Dow Drops 200 Points After Hotter-Than-Expected PPI Sparks Rate Cut Doubts

Stocks retreated Thursday as a stronger-than-expected inflation report undermined optimism about near-term Federal Reserve rate cuts.

The Dow Jones Industrial Average fell 200 points, or 0.5%, while the S&P 500 and Nasdaq slipped 0.4% and 0.3%, respectively. The pullback came just one day after the S&P 500 and Nasdaq hit new record highs, buoyed by cooler consumer inflation data earlier in the week.

But July’s Producer Price Index (PPI) upended that momentum. Wholesale prices rose 0.9% month-over-month—well above the 0.2% estimate and marking the biggest jump since June 2022. Core PPI, which excludes food and energy, also advanced 0.9%, triple economists’ expectations. The spike fueled concerns that inflationary pressure remains embedded in the supply chain, potentially delaying Fed easing.

What Drove the PPI Surprise—and Should Traders Care?

Services inflation led the charge, rising 1.1%, while trade services margins jumped 2%. Machinery and equipment wholesaling climbed 3.8%, and portfolio management fees surged 5.8%. Airline passenger services also rose 1%. While some traders dismissed the PPI spike as noise—driven largely by volatile categories—others saw it as a caution flag.

Notably, the market still assigns a roughly 93% probability to a September rate cut, according to CME FedWatch. But the odds of a larger 50-basis-point move have been erased, reflecting growing caution. Treasury yields responded accordingly: the 2-year yield edged up to 3.718%, while the 10-year remained near 4.25%.

Which Sectors Felt the Pressure From Hotter Inflation?

Sector performance skewed negative, with economically sensitive groups hit hardest. Materials led losses, dropping 1.23%, followed by industrials (-0.82%) and real estate (-1%). Energy also slipped 0.87% despite stable crude prices. Health care and consumer staples posted moderate declines of 0.54% and 0.5%, respectively.

Technology—despite being the year’s leading sector—was flat, down just 0.01%. Heavyweights Nvidia and AMD fell following the inflation report. Cisco slid 1% after Q4 results narrowly beat estimates and guidance aligned with consensus. Deere plunged 7% on mixed full-year guidance, dragging industrials.

Labor Market Steady but Not Driving Rate Cut Hopes

Initial jobless claimsdeclined slightly to 224,000, better than the 229,000 estimate, while continuing claims dipped to 1.95 million. The data suggest labor markets remain tight but are no longer fueling expectations of imminent policy easing. Traders will now look to next week’s Jackson Hole symposium for further signals from Fed Chair Jerome Powell.

Market Outlook: Jackson Hole Looms as Rate Cut Catalyst

The inflation divergence between CPI and PPI adds complexity to the Fed’s path. While consumer price trends suggest cooling, pipeline pressures raise the risk of inflation re-acceleration.

With the Fed’s Jackson Hole meeting set for next week, traders should watch for any comments that reset or reinforce rate cut expectations.

Until then, rate-sensitive sectors may stay rangebound, and equity upside could be capped by inflation uncertainty.

More Information in our Economic Calendar.